Tuesday, August 07, 2007

Buy to Leave a Myth – Oh Really!

Who, you might wonder are Instant Access Properties and why do they care? Well on their website they describe themselves as “the largest UK organisation dedicated to the creation of wealth through residential property investment.”

Fair enough I suppose. It’s a free market.

They go on to explain: “we specialise in off-plan property. We challenge the traditional convention that property investment involves buyinga finished building. We believe that the smarter thing is to buy one that’s not yet built.”

You get the general idea? It goes on:

“Buying off-plan is a unique way of getting the most out of property investment. Off-plan property is sold to investors before any actual structure exists, meaning that investors gain from the capital growth of the property during its development phase.”

In case you were still in any doubt about what this service is all for, it goes on to explain the concept of “ instant creation of wealth “. And that is the concept that is being sold here. Buy before the property is built, and provided the market continues to grow you will make a tidy sum out of the capital appreciation before it is even ready to live in. It’s a neat trick, and of course, if you are really clever you can sell before completion and avoid conveyancing fees, and stamp duty. If you are not so clever or a bit unlucky you end up saddled with a completed property that you didn’t really want, and can’t afford to sell or let without making a thumping loss; a prime candidate for a future empty home.

You can see why Instant Access Properties are so anxious to dispel the idea of “buy to leave” but I get the impression that the questions in the survey may have been carefully chosen. Of course only a minority will deliberately leave their properties empty for capital gain. Frankly I am surprised it’s as many as 3%. But many more will have ended up in the same position inadvertently.

The real problem is that the dominance of the buy off-plan industry is skewing the way properties are built and sold. London Development Research reported earlier this year that 70% of residential properties sold in London were sold to buy-to let investors. Much of the new build in off-plan sales.

In the past developers selling principally to owner occupiers had to build what the future occupier wanted otherwise they couldn’t sell them. Now developers aren’t building for occupiers but to a market of remote speculators interested primarily in “instant creation of wealth”. Inevitably developers cut costs and the properties that are built are less attractive to occupiers. The idea that we are building the slums of tomorrow may be a bit far fetched. But I can foresee long term problems with the homes that have been created to serve this industry.

Nice article, be sure your particular off plan property can be sold on prior to completion without penalty, as this is not always the case on every development and some will not publicize this fact to property investors. You’ll be better off with your options left open so it’s advisable to avoid developments where selling on is not possible. Be aware that some developers say you can sell before completion but include a clause in the contract stating you may sell on only when they have sold all the other apartments within the development.